Raising Minimum Wage: A Help Or Harm?

Wendy Brown of Schenectady, N.Y., holds a sign before an Occupy Albany rally pushing for a raise in New York's minimum wage on May 29, 2012.

Mike Groll
/ AP

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Originally published on July 8, 2012 7:55 pm

Back in 1912, Massachusetts became the first place in America to introduce a minimum wage, but it would take another quarter century before a national minimum wage was set.

President Franklin Roosevelt made it law in 1938, that any hourly worker had to be paid at least 25 cents an hour. It was revolutionary, and very few countries had anything like it.

Every few years, the federal minimum wage would go up, helping millions of Americans inch closer to a middle-class lifestyle. Something changed in the early 1970s, however, and since then, the minimum wage has fallen by around 25 percent.

Fast-forward to today. The minimum wage is currently $7.25. But in 1968, you'd make the equivalent of $10 an hour in today's money.

"Think about the people that in 1968 got the minimum wage, [and] then think about the group today," says Sen. Tom Harkin of Iowa. "It's basically the same group, but they have 30 percent less buying power."

Harkin, a Democrat, has introduced a bill in Congress to raise the minimum wage to $9.88 an hour. For millions of Americans, an increase in the minimum wage could make a huge difference, but the battle has not been easy.

Fighting For More

In 2008, President Obama campaigned on a promise to raise the minimum wage. He hasn't. Mitt Romney has said he supports pegging minimum wage to inflation, but recently backtracked, and he now opposes an increase.

According to the Economic Policy Institute, if Harkin has his way and the minimum wage was actually raised to $9.88 an hour, it would increase wages for 30 million Americans — 10 percent of the country.

Harkin tells weekends on All Things Considered host Guy Raz that his proposed increase would give hourly wage earners more spending money to help improve the economy.

"People who are making the minimum wage, basically they're spending just about all their money because they don't have much left," Harkin says. "So if you give them a raise, it means more for our gross domestic product."

Harkin estimates that his minimum wage increase would mean about $25 billion more for GDP, 100,000 more jobs and 28 million Americans would get a raise.

To those that say raising the minimum wage would actually increase unemployment, Harkin says there's simply no proof of that. He says they've found that when minimum wages were increased, employment actually went up.

Harkin says he's not "Pollyannish" about the prospects of the bill, and doesn't think Republicans will let it go through. But it is important, he says, to bring it up so that Americans will know where Democrats stand on an issue as fundamental as keeping the minimum wage at a level that provides a decent support for people that are very poor.

"If my proposal went through, a $15,000 a year worker will make $20,000 a year," he says. "You know $5,000 a year is significant to someone in that category. [It] may not get them out of poverty, but it makes life better."

Surviving On Minimum Wage

Every morning at 1 a.m., 50-year-old Margaret Lewis rolls out of bed to start the workday. She works as a transporter for the disabled at O'Hare International Airport making minimum wage. Compared to a lot of hourly workers, however, she's lucky. In Illinois, the minimum wage is a dollar higher than the national rate.

Lewis lives in one of the roughest parts of Chicago's South Side — Englewood — with four of her children in a modest, three-bedroom apartment. All of her children who live at home are in school, and that's the reason she took the early shift — to make sure her kids are fed and get to school.

Lewis works full time and works hard, but even with tips, her annual salary about $18,000 — is still about $10,000 below the U.S. poverty level for a household her size.

It takes an entire paycheck, she tells Raz, to cover back-to-school shoes for the kids. Clothes come from thrift stores, food stamps help a lot, and her monthly rent is $850.

"I never can pay a whole rent," Lewis says. Her family covers the remaining rent by doing work for the landlord. "We do janitor work around [and] keep the grass cut. In the winter, we make sure the porch is shoveled."

In the past year, two people have been killed on her block. In the morning, when her kids have to get themselves off to school, she worries. She says the last shooting was a few months ago and unfortunately it happened at the same time her son was leaving the block going to school, when the bullets rained out.

"That was the most scariest moment of my life," she says. "You know it's not the greatest neighborhood, but if I move, it'll be in the neighborhood of this [type] as well because that's where the most affordable rent that fits my budget will be in."

A $1 increase an hour would mean more than $2,000 a year for someone like Lewis.

"It might not sound a lot to most people, but to me that much in a year would make a big difference in my household," she says.

The Business Of Minimum Wage

Opponents of Harkin's minimum wage bill point to jobs, saying that with such high unemployment, an increase in the minimum wage will make a bad situation worse.

Joe Olivo owns a small printing press in New Jersey that employs 47 people. Olivo tells Raz that a higher minimum wage basically raises the whole wage scale and would force him to make cuts.

"What happens is the employee who's been here for 3 years and has more experience than a person making an entry-level wage, they will rightfully want more for their seniority," Olivo says. "So what it does to me as a business owner, by pushing up wage scale, it increases my expenses."

Olivo says that means he either has to increase revenues — difficult in the current economy — or he must find ways to cut expenses: cutting employees, not hiring new employees or bring in new technology to decrease the number of employees he needs.

"So it really hurts my current employees and it also prevents me from bringing on new ones," he says.

Bill Dunkelberg, chief economist for the National Federation of Independent Businesses, a group that lobbies against increasing the minimum wage, says that every dollar an employee gets comes out of somebody's pocket. He says it's not logical that raising the minimum wage will add more spending money to the economy.

"It's not the job of businesses to turn themselves into social service providers and pay in excess of value to the firm," Dunkelberg says. "We do have something called the earned income tax credit, where we provide supplemental income to people who are working but need more money."

Right now, 18 states have set minimum wage rates slightly higher than the national level, while four states actually have exemptions and even lower minimums.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

GUY RAZ, HOST:

It's WEEKENDS on ALL THINGS CONSIDERED from NPR News. I'm Guy Raz.

A hundred years ago, 1912, Massachusetts became the first place in America to introduce a minimum wage. It would take another quarter century before a national minimum wage was set in 1938.

(SOUNDBITE OF ARCHIVAL RECORDING)

PRESIDENT FRANKLIN ROOSEVELT: Congress passed a Fair Labor Standards Act, what we call the Wages and Hours Bill.

RAZ: That year, President Franklin Roosevelt made it law that any hourly worker had to be paid at least 25 cents an hour.

(SOUNDBITE OF ARCHIVAL RECORDING)

ROOSEVELT: Except perhaps for the Social Security Act, it is the most far-reaching program, the most far-sighted program for the benefit of workers that has ever been adopted here or in any other country.

RAZ: It was revolutionary - very few countries had anything like it. And every few years, the federal minimum wage would go up, helping millions of Americans inch closer to a middle-class lifestyle. But something changed in the early 1970s. Since that time, the minimum wage has fallen by around 25 percent in real dollars.

So, for example, today, the minimum wage is $7.25. But in 1968, you'd make the equivalent of $10 an hour in today's money.

SENATOR TOM HARKIN: Think about the people that in 1968 got the minimum wage and then think about the group today that is basically the same group, but they have 30 percent less buying power.

RAZ: That's Senator Tom Harkin. He's a Democrat from Iowa, and he's introduced a bill in Congress to raise the minimum wage to $9.80. We'll hear more from him in a moment and more about the possibilities and pitfalls of pushing for an increase. Our cover story: getting the maximum from the minimum wage.

(SOUNDBITE OF MUSIC)

RAZ: Now, the first thing we wanted to find out was what it takes to raise a family on minimum wage.

MARGARET LEWIS: My name is Margaret Lewis, and I am a transporter for the disabled at O'Hare Airport.

RAZ: Margaret Lewis is 50. She lives on the South Side of Chicago with her four kids. And compared to a lot of hourly workers, she's lucky. In Illinois, the minimum wage is a dollar higher than the national rate. And every morning at 1 a.m., Margaret Lewis rolls out of bed to start the workday. She's one of the people at O'Hare who pushes passengers in wheelchairs through the terminals.

LEWIS: One thing I like about it, it keeps me in good health. Legs are strong. I can keep up with these teenagers that I have.

RAZ: Margaret lives in one of the roughest parts of Chicago's South Side: Englewood. Her modest three-bedroom apartment sits right under the shadow of the Dan Ryan Expressway. All four of her children who live at home are in school, and that's the reason she took the early shift.

LEWIS: So that I will be home to make sure that homework is done and food is done.

RAZ: Now, Margaret Lewis works full time and she works hard, always on her feet. And even with tips, her annual salary - about $18,000 - is still about $10,000 below the U.S. poverty level for a household her size. It takes an entire paycheck, she told us, just to cover back-to-school shoes for the kids. Clothes come from thrift shops. Food stamps help a lot. And her monthly rent: $850.

LEWIS: I never can pay a whole rent. And what I have made out with the landlord, we do a little janitor work around, keep the grass cut. In the winter, we make sure the porch and stuff is shoveled.

RAZ: In the past year, two people have been killed on her block. And so in the morning, when her kids have to get themselves off to school, she worries.

LEWIS: Every day. Every day. The last shooting was a few months ago. And unfortunately, it happened at the time my son was leaving the block going to school, when the bullets rained out. And I'm all the way at O'Hare Airport. That was the scariest moment of my life. He was real shooken up. So, you know, it's not the greatest neighborhood, but if I move, it'll be in the neighborhood of this surrounding as well because that's where the most affordable rent that fits my budget will be in.

RAZ: A $1 increase an hour would mean more than $2,000 a year for someone like Margaret Lewis.

LEWIS: I would be able to buy new things, not all the time used things. It might not sound a lot to most people, but to me, that much in a year, it would make a big difference in my household.

RAZ: In 2008, President Obama campaigned on a promise to raise the minimum wage. He didn't. Mitt Romney has said he supports pegging it to inflation, but he recently backtracked, and he now opposes an increase.

According to the Economic Policy Institute, if Senator Tom Harkin has his way and the minimum wage were actually raised to $9.88 an hour, it would increase wages for 30 million Americans - 10 percent of the country.

HARKIN: Look at it this way. In today's dollars, the minimum wage in 1968 was $10.34 an hour. And now, it's $7.25 an hour. So that's how big it's fallen.

RAZ: So you want to increase it about 35 percent. What impact do you think that will have on hourly wage earners?

HARKIN: Well, I think what it will do is it will give hourly wage earners more spending money, and they will be then able to buy more goods for their family and send their kids to schools. And that's what helps make our economy go. I mean, people who are making the minimum wage, basically they're spending just about all their money because they don't have much left.

And so if you give them a raise, it means more for our gross domestic product. We've estimated that if you raise that minimum wage to about $10 an hour, it'll be $25 billion more in our gross domestic product, 100,000 more jobs and 28 million Americans would get a raise. Quite frankly, I don't believe anyone should be in poverty if they have a job.

If my proposal went through, a $15,000 a year worker would be making 20,000 a year. You know, $5,000 a year is significant to someone in that category. It may not get them out of poverty, but it sure makes life better.

RAZ: Are you concerned that by doing that, it could actually cost jobs, it could actually increase unemployment in the country?

HARKIN: There's absolutely no proof for that. In fact, just the opposite. We have found that when minimum wages were increased, quite frankly, employment actually went up because we found that if we get a higher minimum wage, as I said, they spend more money and they get the local economy going. And that has a great multiplier effect.

RAZ: What do you think the outlook is for this bill, Senator Harkin? I mean, when do you think it could, if ever, could go to the floor for a debate?

HARKIN: Well, I'm not Pollyannish about it in an election year like this year. I do believe we should bring it up. I don't think the Republicans would ever let it go through. But I think the people of America ought to know where we stand on an issue as fundamental as keeping the minimum wage up at a level that provides a decent support for people that are very poor.

RAZ: That's Senator Tom Harkin from Iowa. Now, opponents of his bill do point to jobs. That with such high unemployment, an increase in the minimum wage will actually make it worse.

That's what Joe Olivo argues. He owns a small printing press in New Jersey, and he employs 47 people. And I asked Olivo how a higher minimum wage would affect him.

JOE OLIVO: It has the effect of lifting the entire wage scale up, because what happens is the employee that's been here for maybe three years and has more experience than a person making an entry-level wage, they will rightfully want more for their experience and seniority.

So what it does to me as a business owner, by pushing up the entire wage scale, it increases my expenses. And I can either, A, increase my revenues, which is very difficult in this economy, or find ways either to cut my expenses by cutting employees, not hiring a new employee or finding ways to bring in new automation or technology to decrease the amount of employees that I need.

So it really hurts my current employees, and it also prevents me from bringing on new employees because the entry level wage - it increases, and I really have to think hard.

RAZ: Eighteen states have set minimum wage rates slightly higher than the national level. Four states actually have exemptions and even lower minimums. A full-time job earning 7.25 an hour adds up to less than $16,000 a year. That's substantially lower than the federal poverty rate.

Bill Dunkelberg is the chief economist for the National Federation of Independent Businesses. That's a group that lobbies against increasing the minimum wage. I asked him whether he believes it's possible to raise a family on that salary.

BILL DUNKELBERG: No. But you're assuming that all these minimum wage workers are raising families. And if you go check the census data, you don't find that to be the case. Most minimum wage workers are temporary workers, part-time workers. And most of the minimum wage workers come from above median income families. So, you know, this is not a deal in which you have to live in New York City on $15,000 and raise a family of four, which is the kind of story that supporters of the minimum wage like to tell.

RAZ: One argument for increasing the federal minimum wage is that it would actually, you know, help small businesses because it would put more money in employees' pockets, money that they would then spend on consumer goods.

DUNKELBERG: Look, every dollar a minimum wage worker gets comes out of somebody's pocket. It either comes out of the employer's pocket or customers who have to pay higher prices to cover the increase in the cost. Logically, that cannot be the case. There cannot be some magical amount of new money that appears and then suddenly spent in a local community.

RAZ: Do you believe there should be no minimum wage at all?

DUNKELBERG: I think it would probably be a good idea. The idea, argument against that, of course, is that suddenly we'll cut all the wages. Well, that's not true. Everybody who's employed now at whatever wage they're employed at, whether it's the minimum wage or 10 an hour or 50 an hour, whatever, are there because they bring that kind of value to the firm. So they're not going to lose their jobs.

But how about the people who aren't quite so skilled? How about the high school dropouts, et cetera? They could get a job at five an hour, three an hour or whatever and learn on the job skills. You know, now they stand on the street corner and they get older, but they do not get more employable. So let anybody get a job, prove themselves at any wage. And, of course, if you're a good worker, you can always get a better job.

RAZ: Your argument is it's better for somebody to earn two or $3 an hour rather than to be a panhandler, for example.

DUNKELBERG: Right. Exactly. I mean, it's not the job of businesses to turn themselves into social service providers and pay wages in excess of the value brought to the firm. I mean, they'll all go bankrupt. We do have something called the earned income tax credit where we provide supplemental income to people who are working but need more money because of the number of children they have or they're a single parent or whatever. So, you know, it's not the job of businesses to guarantee people's income. But if we as a society choose to help people out like that, then we find them through programs like that.

RAZ: That's Bill Dunkelberg from the National Federation of Independent Businesses. By the way, in 1950, it took about 50 hours of minimum wage work to pay the average rent. Today, it takes more than 100 hours. It's ALL THINGS CONSIDERED from NPR News. Transcript provided by NPR, Copyright NPR.